How do you size an option pool?
A typical size for the option pool is 20\% of the stock of the company, but, especially for earlier stage companies, the option pool can be 10\%, 15\%, or other sizes. Once the pool is established, the company’s board of directors grants stock from the pool to employees as they join the company.
What is an option pool VC?
In most cases an option pool is set up when a venture capital investor participates in a company. It is usually a requirement of the investor based on a strong belief that the company’s employees will work harder and be stronger committed if they share in the profits of a future exit.
How can I shrink the size of my option pool?
You effectively shrink the size of the pool by having the pool sized pre-money due to dilution of common shareholders. This is typically called the The Option Pool Shuffle and a smaller pool post money is generally better than a larger one pre-money.
What is an option pool in a startup?
The shares that comprise an option pool typically are drawn from investor stock in the company rather than the shares earmarked for investors. This may be 15\%–25\% of the overall outstanding shares and may be determined when the startup receives its earliest funding round as part of the overall terms put in place.
How do option pools dilute the founders’ share in the company?
The creation of an option pool will commonly dilute the founders’ share in the company because investors (angels and venture capitalists) often insist on it. An option pool refers to a block of company equity that has been reserved for early investors or employees of a start-up company.
How much should a company expand its employee stock option pool?
Once companies grant most or all of the pool, they need to expand it. Expansion usually happens during Series B, and might be 5-10 percent more outstanding stock. By Series C and beyond, adding 1-2 percent is sufficient. The later an employee is hired, the smaller their grant is, because: